<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-15997
ENTRAVISION COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of 95-4783236
incorporation or organization) (I.R.S. Employer Identification No.)
2425 Olympic Boulevard, Suite 6000 West
Santa Monica, California 90404
(Address of principal executive offices) (Zip Code)
(310) 447-3870
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
As of November 14, 2000, there are 65,626,063 shares, $0.0001 par value per
share, of the registrant's Class A common stock outstanding, 27,678,533 shares,
$0.0001 par value per share, of the registrant's Class B common stock
outstanding and 21,983,392 shares, $0.0001 par value per share, of the
registrant's Class C common stock outstanding.
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ENTRAVISION COMMUNICATIONS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
PART I. FINANCIAL INFORMATION
<C> <S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2000 (Unaudited)
and December 31, 1999 1
Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 2000 (Unaudited) and 1999 (Unaudited) 2
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 (Unaudited) and 1999 (Unaudited) 3
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
</TABLE>
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ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30,
2000 (Unaudited) December 31, 1999
--------------------------------------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 291,608 $ 2,357
Receivables:
Trade, net of allowance for doubtful accounts of 2000 $2,217; 1999 29,530 12,392
$979
Related parties 273 273
Prepaid expenses and other current assets 9,547 355
---------------- -----------------
Total current assets 330,958 15,377
Property and equipment, net 99,753 27,230
Intangible assets, net 1,113,104 152,387
Other assets, including deposits on acquisitions of 2000 $6,294; 1999 22,398 10,023
$8,742
---------------- -----------------
$1,566,213 $205,017
================ =================
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND OWNERS' EQUITY
Current liabilities
Current maturities of notes and advances payable, related parties $ 201 $ 231
Current maturities of long-term debt 1,321 1,389
Accounts payable and accrued expenses (including related parties of 27,492 7,479
2000 $702; 1999 $280)
---------------- -----------------
Total current liabilities 29,014 9,099
---------------- -----------------
Long-term debt
Subordinated note payable to Univision -- 10,000
Notes payable, less current maturities 215,722 155,917
---------------- -----------------
215,722 165,917
Other long-term liabilities 6,669 --
Deferred taxes 176,746 1,990
---------------- -----------------
Total liabilities 428,151 177,006
---------------- -----------------
Commitments and contingencies
Series A mandatorily redeemable convertible preferred stock, $0.0001 par 79,053 -
value, 11,000,000 shares authorized; shares issued and outstanding 2000
5,865,102
Members' capital
Entravision Communications Company, L.L.C. - 59,645
Common stock of member corporations - 1,256
Additional paid-in capital of member corporations - 16,329
Accumulated deficit - (48,635)
Stockholders' equity
Class A common stock, $0.0001 par value, 260,000,000 shares 7 -
authorized; shares issued and outstanding 2000 65,626,063
Class B common stock, $0.0001 par value, 40,000,000 shares 3 -
authorized; shares issued and outstanding 2000 27,678,533
Class C common stock, $0.0001 par value, 25,000,000 shares 2 -
authorized; shares issued or outstanding 2000 21,983,392
Additional paid-in capital 1,083,149 -
Deferred compensation (6,969) -
Accumulated deficit (16,581) -
---------------- -----------------
1,138,664 28,595
Less: stock subscription notes receivable (602) (584)
---------------- -----------------
1,138,062 28,011
---------------- -----------------
$1,566,213 $205,017
================ =================
</TABLE>
See Notes to Consolidated Financial Statements.
1
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ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share, per share and per membership unit data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- --------------------------------------
2000 1999 2000 1999
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Gross revenues (including network $ 49,390 $ 17,580 $ 108,659 $ 46,635
compensation from Univision of
$855, $568, $4,159 and $1,926)
Less agency commissions 4,341 1,844 10,301 4,783
----------- ----------- ----------- -----------
Net revenues 45,049 15,736 98,358 41,852
----------- ----------- ----------- -----------
Expenses:
Direct operating (including 16,438 6,067 37,764 16,630
Univision national
representation fees of
$1,075, $830, $2,989 and $2,106)
Selling, general and administrative 10,947 2,963 22,835 8,397
(excluding non-cash stock-based
compensation of $1,027,
$7,286, $4,590 and $21,857)
Corporate expenses (including 4,790 1,563 9,267 4,152
related parties of $161, $264,
$340 and $415)
Non-cash stock-based 1,027 7,286 4,590 21,857
compensation
Depreciation and amortization 21,721 4,071 36,857 11,451
----------- ----------- ----------- -----------
54,923 21,950 111,313 62,487
----------- ----------- ----------- -----------
Operating (loss) (9,874) (6,214) (12,955) (20,635)
Interest expense (including (9,047) (2,517) (23,186) (6,493)
amounts to Univision of $724,
$175, $3,645 and $526)
Non-cash interest expense relating (2,615) (2,500) (39,677) (2,500)
to related party beneficial
conversion options
Interest income 3,807 38 4,252 66
----------- ----------- ----------- -----------
Loss before income taxes (17,729) (11,193) (71,566) (29,562)
Income tax (expense) benefit (7,317) 13 (7,475) (68)
----------- ----------- ----------- -----------
Net (loss) before equity (25,046) (11,180) (79,041) (29,630)
in earnings of nonconsolidated
affiliate
Equity in loss of nonconsolidated (166) -- (166) --
Affiliate
=========== =========== =========== ===========
Net (loss) $ (25,212) $ (11,180) $ (79,207) $ (29,630)
Loss per membership unit $ (4.30) $ (5.37) $ (31.04) $ (14.00)
=========== =========== =========== ===========
Loss per share $ (0.14) $ (0.14)
----------- -----------
Pro forma provision for income
taxes benefit 3,297 318 5,904 1,346
----------- ----------- ----------- -----------
Pro forma net loss $ (6,234) $ (10,875) $ (57,638) $ (28,216)
=========== =========== =========== ===========
Pro forma per share data:
Net loss per share: basic and
diluted $ (0.30) $ (0.34) $ (1.59) $ (0.87)
=========== =========== =========== ===========
Weighted average common shares
Outstanding: basic and diluted 85,817,163 32,418,854 50,321,985 32,414,009
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
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ENTRAVISION COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
Cash Flows from Operating Activities: 2000 1999
<S> <C> <C>
Net (Loss) $ (79,207) $(29,630)
Adjustments to Reconcile Net (Loss) to Net Cash Provided by Operating
Activities:
Depreciation and amortization 36,857 11,256
Deferred tax expense (benefit) 7,188 (228)
Amortization of debt issue costs 2,237 195
Intrinsic value of subordinated note exchange option 39,677 --
Net loss in equity method investee 166 --
Non-cash stock-based compensation 4,590 21,857
Loss on disposal of property and equipment 15 100
Changes in assets and liabilities, net of effect of business
combination:
(Increase) in accounts receivable (4,757) (2,255)
(Increase) decrease in prepaid expenses and other assets 1,616 (369)
Increase (decrease) in accounts payable, accrued expense and other 679 (1,181)
---------- --------
Net cash provided by operating activities 9,061 (255)
---------- --------
Cash Flows from Investing Activities:
Proceeds from sale of equipment 22 59
Proceeds from sale of station assets 1,001 --
Purchases of property and equipment (10,802) (5,290)
Cash deposits and purchase price on acquisitions (769,008) (37,103)
---------- --------
Net cash (used in) investing activities (778,787) (42,334)
---------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 813,977 --
Purchase and retirement of common stock -- (30)
Principal payments on note payable (325,241) (280)
Proceeds from borrowings on notes payable 573,655 44,951
Dividends paid to members for income taxes -- (2,400)
Payments of deferred debt costs (3,414) --
---------- --------
Net cash provided by financing activities 1,058,977 42,241
---------- --------
Net increase (decrease) in cash and cash equivalents 289,251 (348)
Cash and Cash Equivalents:
Beginning 2,357 3,661
---------- --------
Ending $ 291,608 $ 3,313
========== ========
Supplemental Disclosures of Cash Flow Information
Cash Payments for:
Interest $ 19,204 $ 6,504
========== ========
Income taxes $ 695 $ 377
========== ========
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Deferred stock compensation $ 6,969 $ --
========== ========
Assets Acquired and Debt Issued in Business Combinations:
Current assets, net of cash acquired $ 31,646 $ 86
Broadcast equipment and furniture and fixtures 69,455 4,260
Intangible assets 979,716 64,936
Other assets 7,866 --
Current liabilities (18,244) --
Deferred taxes (167,569) (2,112)
Notes payable -- (12,000)
Other liabilities (5,150) --
Increase in subordinated debt exchange option -- (13,915)
Issuance of Common Stock (118,600) --
Estimated fair value allocated to option agreement (3,015) --
Fair market and intrinsic value and options exchanged in
business combinations, net (2,788) --
Less cash deposits from prior year (8,500) (4,200)
---------- --------
Net cash paid $ 764,817 $ 37,055
========== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
ENTRAVISION COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
1. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by Entravision Communications Corporation (the "Company" or "ECC"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These condensed consolidated financial statements and
notes thereto should be read in conjunction with the Company's audited combined
financial statements for the year ended December 31, 1999 included in the
Company's Registration Statement on Form S-1 (No. 333-35336) and the amendments
thereto. The unaudited information contained herein has been prepared on the
same basis as the Company's audited combined financial statements and, in the
opinion of the Company's management, includes all adjustments (consisting of
only normal recurring adjustments) necessary for a fair presentation of the
information for the periods presented. The interim results presented herein are
not necessarily indicative of the results of operations that may be expected for
the full fiscal year ending December 31, 2000 or any other future period.
2. Initial Public Offering
On August 9, 2000, the Company completed an underwritten initial public
offering ("IPO") of 46,435,458 shares of its Class A common stock at a price of
$16.50 per share. The Company also sold 6,464,542 shares of its Class A common
stock directly to Univision Communications Inc. ("Univision") at a price of
$15.47 per share. The net proceeds to the Company, after deducting underwriting
discounts and commissions, and offering expenses, were approximately $813
million.
3. The Company and Significant Accounting Policies
On February 11, 2000, ECC was formed. The First Restated Certificate of
Incorporation of ECC authorizes both common and preferred stock. The common
stock has three classes identified as A, B and C which have similar rights and
privileges, except the Class B common stock provides ten votes per share as
compared to one vote per share for all other classes of common stock. Univision,
as the holder of all Class C common stock, is entitled to vote as a separate
class to elect two directors, and has the right to vote as a separate class on
certain material transactions. Class B and C common stock is convertible at the
holder's option into one fully-paid and nonassessable share of Class A common
stock and is required to be converted into one share of Class A common stock
upon certain events as defined in the First Restated Certificate of
Incorporation. The Series A mandatorily redeemable convertible preferred stock
has limited voting rights, and accrues an 8.5% dividend.
Effective August 3, 2000, an exchange transaction was consummated whereby
the direct and indirect ownership interests in Entravision Communications
Company, L.L.C. (ECC LLC) were exchanged for Class A or Class B common stock of
ECC. The Class B common stock was issued to Walter F. Ulloa, Philip C. Wilkinson
and Paul A. Zevnik (and certain trusts and related
4
<PAGE>
entities of such individuals) in exchange for their direct and indirect
membership interests in ECC LLC. Each of the remaining individuals, trust and
other entities holding direct membership interests in ECC LLC exchanged such
interests for Class A common stock of ECC. In addition, the remaining
stockholders (other than Messrs. Ulloa, Wilkinson and Zevnik) of Cabrillo
Broadcasting Corporation, Golden Hills Broadcasting Corporation, Las Tres Palmas
Corporation, Tierra Alta Broadcasting, Inc., KSMS-TV, Inc., Valley Channel 48,
Inc. and Telecorpus, Inc. (collectively, the "Affiliates") exchanged their
common shares of the respective corporations for Class A common stock of ECC.
Accordingly, the Affiliates became wholly-owned subsidiaries of ECC.
Additionally, Univision exchanged its subordinated note for Class C common
stock. The number of shares of common stock of ECC issued to the members of ECC
LLC and the stockholders of the Affiliates was determined in such a manner that
the ownership interest in ECC equaled the direct and indirect ownership interest
in ECC LLC immediately prior to the exchange.
ECC LLC and Affiliates were considered to be under common control and, as
such, the exchange was accounted for in a manner similar to a pooling of
interests.
Earnings Per LLC Membership Unit
Basic earnings per membership unit is computed as net income (loss) divided
by the weighted average number of membership units outstanding for the period
through August 2, 2000 in which the Company operated as a limited liability
company. Diluted earnings per membership unit reflects the potential dilution
that could occur from membership units issuable through options and convertible
securities.
For the period up to the date of the exchange transaction included in the
three months and nine months ended September 30, 2000 and 1999, all dilutive
securities have been excluded as their inclusion would have had an antidilutive
effect on earnings per membership unit.
The following table sets forth the calculation of loss per LLC membership
unit:
<TABLE>
<CAPTION>
For the Period Three Months For the Period Nine Months
July 1 - Ended January 1 - Ended
August 2, September 30, August 2- September 30,
----------------- -------------- --------------- ---------------
2000 1999 2000 1999
----------------- -------------- --------------- ---------------
(In thousands, except membership units)
<S> <C> <C> <C> <C>
Earnings (loss):
Net loss $ (9,531) $ (11,180) $ (63,542) $ (29,630)
Less loss of member corporations (1,129) (956) (2,886) (2,974)
----------------- -------------- --------------- ---------------
Net loss applicable to members $ (8,402) $ (10,224) $ (60,656) $ (26,656)
================= ============== =============== ===============
Membership units outstanding 1,953,924 1,903,951 1,953,924 1,903,951
================= ============== =============== ===============
</TABLE>
5
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Earnings Per Share
The following table sets forth the calculation of the C corporation's loss
per share:
<TABLE>
<CAPTION>
For the Period
August 3 to
September 30, 2000
------------------
(In thousands
of dollars,
except shares)
<S> <C>
Earnings (loss):
Net (loss) $ (15,681)
Accretion of Preferred Stock
redemption value (900)
===============
Net (loss) attributable to
Common Stock $ (16,581)
===============
Shares 115,287,988
===============
</TABLE>
Basic earnings per share is computed as net income (loss) less accrued
dividends payable on Series A mandatorily redeemable preferred stock divided by
the weighted average number of shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur from shares
issuable through options and convertible securities.
For the period August 3, 2000 to September 30, 2000, all dilutive
securities have been excluded as their inclusion would have had an antidilutive
effect on earnings per share. As of September 30, 2000, the number of shares
that would be included in determining the weighted average shares outstanding
for diluted earnings per share if their effect was not antidilutive are as
follows: 5,583,876 for stock options, 549,293 for stock grants subject to
repurchase and 5,865,102 for Series A mandatorily redeemable convertible
preferred stock.
Pro Forma Income Tax Adjustments and Pro Forma Earnings Per Share
The pro forma income tax information is included in these financial
statements for all periods prior to the exchange transaction to show what the
significant effects might have been on the historical statements of operations
had the Company and its affiliates not been treated as flow-through entities not
subject to income taxes. The pro forma information reflects a benefit for income
taxes at the assumed effective rate in the three months and nine months ended
September 30, 2000 and 1999.
The weighted average number of shares of common stock outstanding during
the periods used to compute pro forma basic and diluted net loss per share is
based on the conversion ratio used to exchange ECC LLC membership units and
member corporation shares for shares of ECC's common stock immediately prior to
the effective date of the IPO. As of September 30, 2000, the number of shares
that would be included in determining the weighted average shares outstanding
for diluted earnings per share if their effect was not antidilutive are as
follows: 5,583,876 for stock options,549,293 for stock grants subject to
repurchase and 5,865,102 for Series A mandatorily redeemable convertible
preferred stock.
4. Business Combinations
During the three months ended September 30, 2000, with the exception of
Latin Communications Group, Inc. (LCG) which was a significant second quarter
acquisition, the Company acquired the following companies, all of which were
accounted for as purchase business combinations with the operations of the
businesses included subsequent to their respective acquisition dates. The
allocation of the respective purchase prices are generally based upon
management's estimates of the discounted future cash flows to be generated from
the broadcast properties for intangible assets and replacement cost for tangible
assets, and reflects management's preliminary allocation of purchase price.
6
<PAGE>
On April 20, 2000, the Company acquired all of the outstanding capital
stock of LCG for approximately $256.0 million. LCG operates radio stations in
California, Colorado, New Mexico and Washington D.C. and also owns and operates
two Spanish-language publications. In connection with this acquisition, the
Company amended certain financial covenants related to its credit facility to
provide for this acquisition and the issuance of a $90.0 million convertible
subordinated note. The subordinated note contained two conversion rights, a
voluntary option to the holder at any time after December 31, 2000 and the
second, automatically upon the effectiveness of the IPO and the exchange
transaction. Effective with the IPO, as discussed in Note 2, the subordinated
note converted into 5,865,102 shares of Series A mandatorily redeemable
convertible preferred stock of ECC. The Series A preferred stock is convertible
into Class A common stock on a share-per-share basis at the option of the holder
at any time and accrues dividends at 8.5% per annum, compounded annually and
payable upon the liquidation of the Company or redemption. All accrued and
unpaid dividends are to be waived and forgiven upon the conversion of the Series
A preferred stock into Class A common stock. The Series A preferred stock is
subject to redemption at face value plus accrued dividends at the option of the
holder for a period of 90 days beginning five years after its issuance, and must
be redeemed in full ten years after its issuance. The Company also has the right
to redeem the Series A preferred stock at its option at any time one year after
its issuance, provided that the trading price of the Class A common stock equals
or exceeds 130% of the IPO price of the Class A common stock for 15 consecutive
trading days immediately before such redemption.
In connection with the $90.0 million convertible subordinated note, the
Company realized additional non-cash interest expense of approximately $8.1
million of the $19.5 million intrinsic value of the voluntary beneficial
conversion feature through the automatic conversion date. Upon conversion, the
carrying value of the note, net of the unamortized beneficial conversion
discount of $11.4 million, was recorded as Series A mandatorily redeemable
convertible preferred stock.
The Company is recording a periodic charge to accumulated deficit to
recognize the accretion of the preferred stock to its redemption value. During
the three months ended September 30, 2000, the Company recorded a $0.9 million
accretion charge.
Z-Spanish Media Corporation
On April 20, 2000, the Company agreed to acquire all of the outstanding
capital stock of Z-Spanish Media Corporation ("Z-Spanish Media"). This
transaction closed on August 9, 2000. Z-Spanish Media owns 33 radio stations and
an outdoor billboard business. The purchase price, as amended on July 25, 2000,
consisted of approximately $222 million in cash, 7,187,888 shares of newly-
issued Class A common stock of the Company after the reorganization as discussed
in Note 3, and the assumption of certain liabilities. To comply with a
preliminary Department of Justice inquiry, six of Z-Spanish Media's radio
stations were transferred to a trust. The beneficiaries of the trust are the
former stockholders of Z-Spanish Media. The net proceeds from the sale of these
stations will be remitted to the former stockholders of Z-Spanish Media.
In connection with this acquisition, the Company issued approximately 1.5
million options to purchase its Class A common stock in exchange for Z-Spanish
Media's previously outstanding stock options. In connection with these stock
options, the Company will record as
7
<PAGE>
additional purchase price approximately $12.4 million for the excess of the
estimated fair value over the intrinsic value of the options. In addition, the
Company will recognize approximately $0.8 million as non-cash stock-based
compensation over the remaining three-year vesting period. The purchase price
has been preliminarily allocated as follows: $54.3 million to fixed assets,
$480.6 million to intangibles and $20.9 million to other assets.
Citicasters Co.
In March 2000, the Company entered into an asset purchase agreement with
Citicasters Co., a subsidiary of Clear Channel Communications, Inc., to acquire
the FCC licenses relating to the operations of radio stations KACD(FM) Santa
Monica, California, and KBCD(FM) Newport Beach, California, for $85.0 million.
This transaction closed on August 24, 2000. The purchase price was preliminarily
allocated as follows: $0.6 million to fixed assets and $84.4 million to
intangibles.
Radio Stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM)
On May 22, 2000, the Company agreed to acquire certain assets relating to
the operations of radio stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM) from
Sunburst Media, LP for $55.0 million. This transaction closed on September 12,
2000. The purchase price was preliminarily allocated as follows: $2.7 million to
fixed assets and $52.3 million to intangibles.
Pro Forma Results
The following pro forma results of continuing operations assume all of the
Company's 2000 and 1999 acquisitions occurred on January 1, 2000 and 1999,
respectively. The unaudited pro forma results have been prepared using the
historical financial statements of the Company and each acquired entity. The
unaudited pro forma results give effect to certain adjustments including
amortization of goodwill, depreciation of property and equipment, interest
expense and the related tax effects.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------- --------------------------------
2000 1999 2000 1999
--------- --------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net Revenue $ 50,446 $ 40,713 $ 143,477 $ 107,949
Net (loss) (39,066) (33,292) (135,397) (101,760)
Basic and diluted net (loss) per share $ (0.47) $ (1.03) $ (2.71) $ (3.14)
</TABLE>
The above pro forma financial information does not purport to be indicative
of the results of operations had the 2000 and 1999 acquisitions actually taken
place on January 1, 2000 and 1999, respectively, nor is it intended to be a
projection of future results or trends.
8
<PAGE>
Acquisitions Subsequent to September 30, 2000
Infinity Broadcasting Corporation
On June 13, 2000, the Company agreed to acquire certain outdoor advertising
assets from Infinity Broadcasting Corporation for a total of $168.2 million. The
transaction closed on October 2, 2000. The Company financed the asset
acquisition with proceeds from its IPO.
Community Broadcasting Company of San Diego, Inc.
The Company entered into agreements to acquire a controlling interest in
television station K17DI in San Diego, California, for approximately $4.6
million. The closing of the transaction was completed on November 10, 2000.
Pending Transactions
WHCT-TV
In February 2000, the Company entered into an agreement to acquire the FCC
license of television station WHCT in Hartford, Connecticut, for $18.0 million.
Management intends to close on this transaction upon receiving FCC approval,
which it anticipates receiving in the fourth quarter of 2000.
WNTO-TV
On April 14, 2000, the Company agreed to acquire certain assets of
television station WNTO-TV, Orlando, Florida, for approximately $23.0 million.
The Company anticipates that the closing of this transaction will occur in the
fourth quarter of 2000.
WUNI-TV
On October 11, 2000, the Company agreed to acquire certain assets of
television station WUNI-TV in Boston, Massachusetts, for $47.5 million. The
Company anticipates that the closing of this transaction will occur in the first
quarter of 2001.
5. Stock Options and Grants
2000 Omnibus Equity Incentive Plan
The Company adopted a 2000 Omnibus Equity Incentive Plan that allows for
the award of up to 11,500,000 shares of Class A common stock. Awards under the
plan may be in the form of incentive stock options, nonqualified stock options,
stock appreciation rights, restricted stock or stock units. In August 2000, the
Company awarded 4,089,715 stock options to employees and consultants.
6. Litigation
Since September 8, 1999, the Company has been a party to a proceeding with
Hispanic Broadcasting Corporation ("Hispanic Broadcasting") before the American
Arbitration Association ("AAA") in Phoenix, Arizona regarding a dispute over an
agreement to exchange the Company's radio station KLNZ-FM, Glendale, Arizona,
with Hispanic Broadcasting's radio station KRIX-FM, Winnie, Texas. The agreement
provides for liquidated damages of $2 million
9
<PAGE>
in the case of a breach. The Company could also be required to exchange stations
in accordance with the agreement. This proceeding was heard before the AAA on
October 18-19, 2000, and the Company is awaiting a decision.
The Company is a defendant to a lawsuit filed in the Superior Court of the
District of Columbia by First Millenium Communications, Inc. to resolve certain
contract disputes arising out of a terminated brokerage-type arrangement with
First Millenium. The litigation primarily concerns the payment of a brokerage
fee alleged to be due in connection with the acquisition of television station
WBSV in Sarasota, Florida for $17.0 million. In addition to its various
contractual claims, First Millenium also has asserted claims for fraud, RICO,
misappropriation, breach of fiduciary duty, defamation and intentional
infliction of emotional distress. First Millenium is seeking in excess of $60
million including the right to a 10% ownership interest in WBSV and the right to
exchange such interest in the reorganization described in Note 3. First
Millenium has made similar claims relating to other pending acquisitions.
No accrual has been recorded in the accompanying financial statements
beyond the amount management believes is the remaining contractual obligation of
$0.3 million since the ultimate liability in excess of the amount recorded, if
any, cannot be reasonably estimated. Management intends to vigorously defend
against these claims and does not believe that any resolution of this litigation
is likely to have a material adverse effect on the Company's financial position,
results of operations or cash flows.
On July 20, 2000, Telemundo Network Group LLC, Telemundo Network, Inc. and
Council Tree Communications, L.L.C. filed an action against the Company and
certain of the Company's affiliates in the Circuit Court of the 11th Judicial
Circuit in and for Miami-Dade County, Florida relating to the Company's
investment in XHAS-TV, Channel 33 in Tijuana, Mexico. The action seeks to have
the sale voided and other unspecified damages for breach of contract relating to
Telemundo's attempted exercise of a right of first refusal to buy the assets of
XHAS-TV. In addition to its contract claim, Telemundo asserts tortious
interference, fraud and conspiracy to defraud. The Company intends to vigorously
defend against this action.
Subsequently, the Company filed an action in the Superior Court of the
State of California for the County of San Diego against the same Telemundo
entities seeking unspecified damages and a declaratory judgment that, among
other things, Telemundo failed to timely exercise its right of first refusal
with respect to the acquisition of the assets of XHAS-TV. This action has been
stayed by the court pending resolution of the Florida action discussed in the
preceding paragraph.
The Company does not believe that any resolution of these matters is likely
to have an adverse material impact.
7. Segment Information
Upon consummation of the 2000 acquisitions, management has determined that
the Company operates in four reportable segments consisting of television
broadcasting, radio broadcasting, newspaper publishing and outdoor advertising.
Prior to the second quarter 2000 acquisition of LCG, the Company had a single
reportable segment. Prior to the third quarter 2000 Z-Spanish acquisition, the
Company had three reportable segments. All previously
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reported information has been restated to be consistent with the presentation
management currently utilizes to determine its reportable segments. Information
about each of the operating segments follows:
Television Broadcasting
The Company operates 31 television stations primarily in the southwestern
United States, and consist primarily of Univision affiliates.
Radio Broadcasting
The Company operates 56 radio stations (37 FM and 19 AM) located primarily
in Arizona, California, Colorado, Florida, Illinois, Nevada, New Mexico and
Texas.
Newspaper Publishing
The Company's newspaper publishing operations consists of two publications
in New York.
Outdoor Advertising
The Company owns approximately 10,000 billboards in Los Angeles and New
York.
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Separate financial data for each of the Company's operating segments is
provided below. Segment operating loss is defined as operating loss before
corporate expenses and non-cash stock-based compensation. The Company evaluates
the performance of its operating segments based on the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- ----------------------------------
2000 1999 2000 1999
---------- -------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C>
Net Revenue
TV $ 21,165 $ 15,152 $ 60,111 $ 40,341
Radio 15,437 584 25,590 1,511
Outdoor 3,139 -- 3,139 --
Print 5,308 -- 9,518 --
---------- -------- ---------- --------
Total $ 45,049 $ 15,736 $ 98,358 $ 41,852
========== ======== ========== ========
Direct Expenses
TV $ 8,765 $ 5,772 $ 24,740 $ 15,723
Radio 3,841 295 7,038 907
Outdoor 870 -- 870 --
Print 2,962 -- 5,116 --
---------- -------- ---------- --------
Total $ 16,438 $ 6,067 $ 37,764 $ 16,630
========== ======== ========== ========
Selling General and Administrative
Expenses
TV $ 3,384 $ 2,861 $ 11,002 $ 8,044
Radio 5,459 102 8,512 353
Outdoor 457 -- 457 --
Print 1,647 -- 2,864 --
---------- -------- ---------- --------
Total $ 10,947 $ 2,963 $ 22,835 $ 8,397
========== ======== ========== ========
Depreciation and Amortization
TV $ 4,997 $ 3,896 $ 15,004 $ 10,926
Radio 14,139 175 19,170 525
Outdoor 1,806 -- 1,806 --
Print 779 -- 877 --
---------- -------- ---------- --------
Total $ 21,721 $ 4,071 $ 36,857 $ 11,451
========== ======== ========== ========
Segment Operating Profit (Loss)
TV $ 4,019 $ 2,623 $ 9,365 $ 5,648
Radio (8,002) 12 (9,130) (274)
Outdoor 6 -- 6 --
Print (80) -- 661 --
---------- -------- ---------- --------
Total $ (4,057) $ 2,635 $ 902 $ 5,374
========== ======== ========== ========
Corporate Expenses $ 4,790 $ 1,563 $ 9,267 $ 4,152
Non-Cash Stock-Based Compensation 1,027 7,286 4,590 21,857
---------- -------- ---------- --------
Consolidated Operating (Loss) $ (9,874) $ (6,214) $ (12,955) $(20,635)
========== ======== ========== ========
Total Assets
TV $ 519,068 $190,560 $ 519,068 $190,560
Radio 981,602 5,825 981,602 5,825
Outdoor 60,970 -- 60,970 --
Print 4,573 -- 4,573 --
---------- -------- ---------- --------
Total $1,566,213 $196,385 $1,566,213 $196,385
========== ======== ========== ========
</TABLE>
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Form 10-Q contains forward-looking statements, including statements
concerning our expectations of future revenue, expenses, the outcome of our
growth and acquisition strategy and the projected growth of the U.S. Hispanic
population. Forward-looking statements often include words or phrases such as
"will likely result," "expect," "will continue," "anticipate," "estimate,"
"intend," "plan," "project," " outlook," "seek " or similar expressions. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed in the forward-looking statements. Factors which could
cause actual results to differ from expectations include those under the heading
"Factors that May Affect Future Results" in our Form 10-Q for the quarter ended
June 30, 2000. Our results of operations may be adversely affected by one or
more of these factors. We caution you not to place undue reliance on these
forward-looking statements, which reflect our management's view only as of the
date of this Form 10-Q.
Such statements are not guarantees of future performance and are subject to
certain risks, uncertainties and assumptions that are difficult to predict.
Therefore our actual results could differ materially and adversely from those
expressed in any forward-looking statements as a result of various factors. The
section entitled "Factors That May Affect Future Results" set forth in our Form
10-Q for the quarter ended June 30, 2000 and similar discussions in our
registration statement declared effective by the SEC on August 1, 2000 discuss
some of the important risk factors that may affect our business, results of
operations and financial condition. You should carefully consider those risks,
in addition to the other information in this report and in our other filings
with the SEC, before deciding to invest in our company or to maintain or
increase your investment. We undertake no obligation to revise or update
publicly any forward-looking statements for any reason. The information
contained in this Form 10-Q is not a complete description of our business or the
risks associated with an investment in our common stock. We urge you to
carefully review and consider the various disclosures made by us in this report
and in our other reports filed with the SEC that discuss our business in greater
detail.
We operate 31 television stations (and have three additional television
stations that are not yet operational) and 56 radio stations primarily in the
Southwestern United States where the majority of U.S. Hispanics live, including
the U.S./Mexican border markets. Our television stations consist primarily of
Univision affiliates serving 17 of the top 50 U.S. Hispanic markets. Our radio
stations consist of 37 FM and 19 AM stations serving portions of the Arizona,
California, Colorado, Florida, Illinois, New Mexico and Texas markets.
We were organized as a Delaware limited liability company in January 1996
to combine the operations of our predecessor entities. On August 3, 2000 we
completed a reorganization in which all of the outstanding direct and indirect
membership interests of our predecessor and Univision's subordinated note and
option were exchanged for shares of our common stock.
We generate revenue from sales of national and local advertising time on
television and radio stations and advertising in our publications and on our
billboards. Advertising rates are, in large part, based on each station's
ability to attract audiences in demographic groups targeted by advertisers. We
recognize advertising revenue when the commercials are broadcast, when
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<PAGE>
publishing services are provided and when outdoor services are provided. We
incur commissions from agencies on local, regional and national advertising. Our
revenue reflects deductions from gross revenue for commissions to these
agencies.
Our primary expenses are employee compensation, including commissions paid
to our sales staffs, marketing, promotion and selling costs, technical, local
programming, engineering costs and general and administrative expenses. Our
local programming costs for television consist of costs related to producing a
local newscast in each of our markets.
We have historically not had material income tax expense or benefit
reflected in our statement of operations as the majority of our subsidiaries
have been non-taxpaying entities. Federal and state income taxes attributable to
income during such periods were incurred and paid directly by the members of our
predecessor. Accordingly, no discussion of income taxes is included in this
section. However, we are now a taxpaying organization and effective with the
exchange transaction, we have recorded a charge to income tax expense of
approximately $7.3 million to establish net deferred tax liabilities, as a
result of our change in tax status. We have included in our historical
financial statements a pro forma provision for income taxes and a pro forma net
loss to show what our net income or loss would have been if we were a taxpaying
entity. We anticipate that our future effective income tax rate will vary from
40% due to a portion of our purchase price for the LCG and Z-Spanish Media
acquisitions being allocated to non-tax deductible goodwill.
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<PAGE>
Three Months and Nine Months Ended September 30, 2000
Compared to the Three Months and Nine Months Ended September 30, 1999
The following table sets forth selected data from our operating results for
the three months and nine months ended September 30, 1999 and 2000 (dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- -------------------------------------
September 30, September 30, % September 30, September 30, %
2000 1999 Change 2000 1999 Change
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Gross revenue $ 49,390 $ 17,580 181% $ 108,659 $ 46,635 133%
Less agency commissions 4,341 1,844 135% 10,301 4,783 115%
---------------- ------------- --------------- ---------------
Net revenue 45,049 15,736 186% 98,358 41,852 135%
Direct operating expenses 16,438 6,067 171% 37,764 16,630 127%
Selling, general and 10,947 2,963 269% 22,835 8,397 172%
administrative expenses
Corporate expenses 4,790 1,563 206% 9,267 4,152 123%
Depreciation and amortization 21,721 4,071 434% 36,857 11,451 222%
Non-cash stock-based 1,027 7,286 (86)% 4,590 21,857 (79)%
compensation
--------------- ------------- --------------- ---------------
Operating income (loss) (9,874) (6,214) 59% (12,955) (20,635) (37)%
Interest expense, net 5,240 2,479 111% 18,934 6,427 195%
Non-cash interest expense 2,615 2,500 5% 39,677 2,500 1,487%
relating to beneficial
conversion options
--------------- ------------- --------------- ---------------
Loss before income tax (17,729) (11,193) 58% (71,566) (29,562) 142%
Income tax benefit (expense) (7,317) 13 N/M (7,475) (68) N/M
--------------- ------------- --------------- ---------------
Net income (loss) before (25,046) (11,180) 124% (79,041) (29,630) 167%
equity in earnings of
nonconsolidated affiliate
Equity in loss of (166) -- 100% (166) -- 100%
nonconsolidated affiliate
--------------- ------------- --------------- ---------------
Net loss $ (25,212) $(11,180) 126% $ (79,207) $(29,630) 167%
=============== ============= =============== ===============
Other Data:
Broadcast cash flow $ 17,664 $ 6,706 163% $ 37,759 $ 16,825 124%
EBITDA (adjusted for $ 12,874 $ 5,143 150% $ 28,492 $ 12,673 125%
non-cash stock-based
compensation)
Cash flows from operating
activities $ 4,333 $ (1,210) 458% $ 9,061 $ (255) 3,653%
Cash flows from investing
activities $(459,886) $(16,561) (2,677)% $ (778,787) $(42,334) (1,740)%
Cash flows from financing
activities $ 742,585 $ 19,738 3,662% $1,058,977 $ 42,241 2,407%
</TABLE>
Broadcast cash flow means operating income (loss) before corporate
expenses, depreciation and amortization, non-cash stock-based compensation and
gain on sale of assets. We have presented broadcast cash flow which we believe
is comparable to the data provided by other companies in the broadcast industry,
because such data is commonly used as a measure of
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<PAGE>
performance for companies in our industry. However, broadcast cash flow should
not be construed as an alternative to operating income (as determined in
accordance with generally accepted accounting principles) as an indicator of
operating performance or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) as a measure of
liquidity.
EBITDA means broadcast cash flow less corporate expenses (adjusted for non-
cash stock-based compensation) and is commonly used in the broadcast industry to
analyze and compare broadcast companies on the basis of operating performance,
leverage and liquidity. EBITDA, as presented above, may not be comparable to
similarly titled measures of other companies unless such measures are calculated
in substantially the same fashion. EBITDA should not be construed as an
alternative to operating income (as determined in accordance with generally
accepted accounting principles) as an indicator of operating performance or to
cash flows from operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity.
Net Revenue. Net revenue increased to $45.0 million for the quarter ended
September 30, 2000 from $15.7 million for the quarter ended September 30, 1999,
an increase of $29.3 million. This increase was primarily attributable to the
acquisitions of LCG and Z-Spanish Media which accounted for $22.3 million.
Other acquisitions accounted for $3.1 million of the increase. Net revenue
increased to $98.4 million for the nine months ended September 30, 2000, from
$41.9 million for the nine months ended September 30, 1999, an increase of $56.5
million. This increase was primarily related to the acquisitions of LCG and Z-
Spanish Media.
Direct Operating Expenses. Direct operating expenses increased to $16.4
million for the quarter ended September 30, 2000 from $6.1 million for the
quarter ended September 30, 1999, an increase of $10.3 million. This increase
was primarily attributable to the acquisitions of LCG and Z-Spanish Media and
television stations serving the San Diego, California market. As a percentage of
net revenue, direct operating expenses decreased to 36% for the quarter ended
September 30, 2000 from 39% for the quarter ended September 30, 1999.
Direct operating expenses increased to $37.8 million for the nine months
ended September 30, 2000 from $16.6 million for the nine months ended September
30, 1999, an increase of $21.2 million. This increase was primarily
attributable to the acquisitions of LCG and Z-Spanish Media and television
stations serving the San Diego, California market. As a percentage of net
revenues, direct operating expenses decreased to 38% for the nine months ended
September 30, 2000 from 40% for the nine months ended September 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $10.9 million for the quarter ended
September 30, 2000 from $3.0 million for the quarter ended September 30, 1999,
an increase of $7.9 million. This increase was primarily attributable to the
acquisitions of LCG and Z-Spanish Media and television stations serving the San
Diego, California market. As a percentage of net revenue, selling, general and
administrative expenses increased to 24% for the quarter ended September 30,
2000 from 19% for the quarter ended September 30, 1999 due to the increase in
selling expenses.
Selling, general and administrative expenses increased to $22.8 million for
the nine months ended September 30, 2000 from $8.4 million for the nine months
ended September 30,
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<PAGE>
1999, an increase of $14.4 million. This increase was primarily attributable to
the acquisitions of LCG and Z-Spanish Media and television stations serving the
San Diego, California market. As a percentage of net revenue, selling, general
and administrative expenses increased to 23% for the nine months ended September
30, 2000 from 20% for the nine months ended September 30, 1999.
Corporate Expenses. Corporate expenses increased to $4.8 million for the
quarter ended September 30, 2000 from $1.6 million for the quarter ended
September 30, 1999, an increase of $3.2 million. This increase was primarily
due to the acquisitions of LCG and Z-Spanish Media and the hiring of additional
corporate personnel due to our growth and the costs associated with being a
public company. As a percentage of net revenue, corporate expenses increased to
11% for the quarter ended September 30, 2000 from 10% for the quarter ended
September 30, 1999.
Corporate expenses increased to $9.3 million for the nine months ended
September 30, 2000 from $4.2 million for the nine months ended September 30,
1999, an increase of $5.1 million. This increase was primarily due to the
acquisitions of LCG and Z-Spanish Media and the hiring of additional corporate
personnel due to our growth and the costs associated with being a public
company. As a percentage of net revenue, corporate expenses decreased to 9% for
the nine months ended September 30, 2000 from 10% for the nine months ended
September 30, 1999 due to the increase in sales.
Depreciation and Amortization. Depreciation and amortization increased to
$21.7 million for the quarter ended September 30, 2000 from $4.1 million for the
quarter ended September 30, 1999, an increase of $17.6 million. This increase
was primarily attributable to the acquisitions of LCG and Z-Spanish Media.
Depreciation and amortization increased to $36.9 million for the nine
months ended September 30, 2000 from $11.5 million for the nine months ended
September 30, 1999, an increase of $25.4 million. This increase was primarily
attributable to the acquisitions of LCG and Z-Spanish Media.
Non-Cash Stock-Based Compensation. Non-cash stock-based compensation
decreased to $1.0 million for the quarter ended September 30, 2000 from $7.3
million for the quarter ended September 30, 1999 a decrease of $6.3 million.
Non-Cash Stock-Based Compensation decreased to $4.6 million for the nine months
ended September 30, 2000 from $21.9 million for the nine months ended September
30, 1999 a decrease of $17.3 million. Non-cash stock-based compensation consists
primarily of compensation expense relating to stock awards granted to our
employees.
Operating Loss. As a result of the above factors, we recognized an
operating loss of $9.9 million for the quarter ended September 30, 2000 compared
to an operating loss of $6.2 million for the quarter ended September 30, 1999
and an operating loss of $13.0 million for the nine months ended September 30,
2000 compared to an operating loss of $20.6 million for the nine months ended
September 30, 1999. Excluding non-cash stock-based compensation, we recognized
an operating loss of $8.8 million for the quarter ended September 30, 2000,
compared to operating income of $1.1 million for the quarter ended September 30,
1999, a decrease of $9.9 million. The decrease was primarily due to the
increase in depreciation and amortization offset by the increase in net revenue.
Interest Expense, Net. Interest expense increased to $5.2 million for the
quarter ended September 30, 2000 from $2.5 million for the quarter ended
September 30, 1999, an increase of
17
<PAGE>
$2.7 million. This increase is primarily due to increased bank loan facilities
in connection with the acquisition of LCG.
Interest expense increased to $18.9 million for the nine months ended
September 30, 2000 from $6.4 million for the nine months ended September 30,
1999, an increase of $12.5 million. This increase is primarily due to increased
bank loan facilities in connection with the acquisition of LCG. The non-cash
interest expense of $2.6 million for the quarter ended September 30, 2000
relates to the estimated intrinsic value of the conversion option feature in our
$90.0 million convertible subordinated note, used to finance our acquisition of
LCG. The non-cash interest expense of $39.7 million for the nine months ended
September 30, 2000 relates to the estimated intrinsic value of the conversion
option in our $90.0 million convertible subordinated note, and our convertable
subordinated note with Univision.
Net Loss. We recognized a net loss of $25.2 million for the quarter ended
September 30, 2000 compared to a net loss of $11.2 million for the quarter ended
September 30, 1999. Excluding non-cash stock-based compensation and interest
expense relating to the estimated intrinsic value of the conversion option
feature in our $90.0 million convertible subordinated note, our net loss
increased to $21.6 million for the quarter ended September 30, 2000 from $1.4
million for the quarter ended September 30, 1999.
We recognized a net loss of $79.2 million for the nine months ended
September 30, 2000 compared to a net loss of $29.6 million for the nine months
ended September 30, 1999. Excluding non-cash stock-based compensation and
interest expense relating to the estimated intrinsic value of the conversion
option feature in our $90.0 million convertible subordinated note and our
subordinated note to Univision, our net loss increased to $34.9 million for the
nine months ended September 30, 2000 from $5.3 million for the nine months ended
September 30, 1999.
Broadcast Cash Flow. Broadcast cash flow increased to $17.7 million for
the quarter ended September 30, 2000 from $6.7 million for the quarter ended
September 30, 1999, an increase of $11.0 million. As a percentage of net
revenue, broadcast cash flow decreased to 39% for the quarter ended September
30, 2000 from 43% for the quarter ended September 30, 1999.
Broadcast cash flow increased to $37.8 million for the nine months ended
September 30, 2000 from $16.8 million for the nine months ended September 30,
1999, an increase of $21.0 million. As a percentage of net revenue, broadcast
cash flow decreased to 38% for the nine months ended September 30, 2000 from 40%
for the nine months ended September 30, 1999.
EBITDA. EBITDA increased to $12.9 million for the quarter ended September
30, 2000 from $5.1 million for the quarter ended September 30, 1999, an increase
of $7.8 million. As a percentage of net revenue, EBITDA decreased to 29% for
the quarter ended September 30, 2000 from 33% for the quarter ended September
30, 1999. The decrease in EBITDA was primarily due to the increase in general
and administrative expenses offset by the increase in net revenue.
EBITDA increased to $28.5 million for the nine months ended September 30,
2000 from $12.7 million for the nine months ended September 30, 1999, an
increase of $15.8 million. As a percentage of net revenue, EBITDA decreased to
29% for the nine months ended September 30, 2000 from 30% for the nine months
ended September 30, 1999. The decrease in EBITDA was
18
<PAGE>
primarily due to the increase in general and administrative expenses offset by
the increase in net revenue.
Liquidity and Capital Resources Overview
Our primary sources of liquidity are cash from our initial public offering,
cash provided by operations and available borrowings under our bank credit
facility. On September 26, 2000, we entered into a new $600.0 million credit
facility which is comprised of a $250.0 million revolver, a $150.0 million term
loan expiring in 2007 and a $200.0 million term loan expiring in 2008. After
consummation of all of the transactions set forth in Note 4 of the Notes to
Consolidated Financial Statements (Unaudited) above, we expect to have
approximately $200.0 million of debt outstanding under our new bank credit
facility and approximately $83.0 million of cash on our balance sheet. Our
obligations under the new facility are secured by all of our assets as well as a
pledge of the stock of several of our subsidiaries, including our special
purpose subsidiaries formed to hold our FCC licenses. The facility contains
financial covenants, including a requirement not to exceed a maximum debt to
cash flow ratio and interest and fixed charge coverage ratios. The facility
requires us to maintain our FCC licenses for our broadcast properties and
contains other operating covenants, including restrictions on our ability to
incur additional indebtedness and pay dividends.
During the remainder of 2000, we anticipate our capital expenditures will
be approximately $12.0 million, including the building of two studio facilities
and upgrades and maintenance on broadcasting equipment and facility improvements
to radio stations in some of our markets. We anticipate paying for these capital
expenditures out of net cash flow from operating activities. The amount of these
capital expenditures may change based on future changes in business plans, our
financial conditions and general economic conditions.
We currently anticipate that the net proceeds from our initial public
offering, funds generated from operations and available borrowings under our
credit facilities will be sufficient to meet our anticipated cash requirements
for the foreseeable future.
We continuously review, and are currently reviewing, opportunities to
acquire additional television and radio stations as well as billboards and other
opportunities targeting the U.S. Hispanic market. We expect to finance any
future acquisitions through funds generated from operations and borrowings under
our proposed new credit facility and through additional debt and equity
financings. Any additional financings, if needed, might not be available to us
on reasonable terms or at all. Failure to raise capital when needed could
seriously harm our business and our acquisition strategy. If additional funds
were raised through the issuance of equity securities, the percentage of
ownership of our stockholders would be reduced. Furthermore, these equity
securities might have rights preferences or privileges senior to our Class A
common stock.
New Pronouncements
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in all
fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Company will adopt SFAS No. 133 effective January 1,
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<PAGE>
2001. SFAS No. 133 will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted
to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities or
firm commitment through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of SFAS No. 133 will have a significant effect on
the Company's earnings or financial position.
In December 1999, the SEC issued SAB No. 101, Revenue Recognition in
Financial Statements. SAB 101 provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. This accounting bulletin, as amended in March 2000, is effective beginning
in the fourth quarter of 2000. Management does not believe that the adoption of
SAB 101 will have a material impact on our or our acquired companies' financial
statements.
In March 2000, FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation - an interpretation of APB Opinion No.
25. Interpretation No. 44 clarifies the definition of employee for purposes of
applying APB Opinion No. 25, Accounting for Stock Issued to Employees, the
criteria for determining whether a plan qualifies as a non-compensatory plan,
the accounting consequence of various modifications to the terms of previously
fixed stock options or awards and the accounting for an exchange of stock
compensation awards in a business combination. Interpretation No. 44 is
effective July 1, 2000, but certain conclusions in Interpretation No. 44 cover
specific events that occurred after either December 15, 1998 or January 12,
2000. Management believes that Interpretation No. 44 will not have a material
effect on the financial position or the results of operations of the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
General
Market risk represents the potential loss that may impact our financial
position, results of operations or cash flows due to adverse changes in the
financial markets. We are exposed to market risk from changes in the base rates
on our variable rate debt. We periodically enter into derivative financial
instrument transactions such as swaps or interest rate caps, in order to manage
or reduce our exposure to risk from changes in interest rates. Under no
circumstances do we enter into derivatives or other financial instrument
transactions for speculative purposes. Our credit facilities require us to
maintain an interest rate protection agreement.
Interest Rates
Our bank term loan bears interest at a variable rate of LIBOR (6.6875% at
September 30, 2000) plus 3.250%. At September 30, 2000 we had $200.0 million of
variable rate bank debt. We currently hedge a portion of our outstanding
variable rate debt by using an interest rate cap. This interest rate cap
effectively converts $50.0 million of our variable rate debt to a LIBOR fixed
rate of 7% for two-year period. Based on the current level of borrowings under
our credit facilities at our interest rate cap agreements, an increase in LIBOR
from the rates at September
20
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30, 2000 to the cap rates would not materially change our interest expense. The
estimated fair value of this interest rate cap agreement was not material and we
expect to continue to use similar types of interest rate protection agreements
in the future.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On July 20, 2000, Telemundo Network Group LLC, Telemundo Network, Inc. and
Council Tree Communications, L.L.C. filed an action against the Company and
certain of the Company's affiliates in the Circuit Court of the 11/th/ Judicial
Circuit in and for Miami-Dade County, Florida relating to the Company's
investment in XHAS-TV, Channel 33 in Tijuana, Mexico. The action seeks to have
the sale voided and other unspecified damages for breach of contract relating to
Telemundo's attempted exercise of a right of first refusal to buy the assets of
XHAS-TV. In addition to its contract claim, Telemundo asserts tortious
interference, fraud and conspiracy to defraud. We intend to vigorously defend
against this action.
Subsequently, we filed an action in the Superior Court of the State of
California for the County of San Diego against the same Telemundo entities
seeking unspecified damages and a declaratory judgment that, among other things,
Telemundo failed to timely exercise its right of first refusal with respect to
the acquisition of the assets of XHAS-TV. This action has been stayed by the
court pending resolution of the Florida action discussed in the preceding
paragraph.
We do not believe that any resolution of these matters is likely to have an
adverse material impact.
Item 2. Changes in Securities and Use of Proceeds.
(C) Recent Sales of Unregistered Securities.
On April 19, 2000, we entered into an Exchange Agreement with our
predecessor, certain exchanging members and stockholders and Univision in which
an aggregate of 1,953,924 direct and indirect membership units in our
predecessor would be exchanged for an aggregate of 5,538,175 shares of our Class
A common stock and 27,678,533 shares of our Class B common stock, and
Univision's subordinated note and option would be exchanged for 21,983,392
newly-issued shares of our Class C common stock as part of our recapitalization
from a limited liability company to a C-corporation. The Exchange Agreement was
amended and restated in its entirety effective as of July 24, 2000. This
reorganization was consummated on August 3, 2000. These shares were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").
On April 20, 2000, we entered into an Acquisition Agreement and Plan of
Merger, as amended in July 2000, with our predecessor, ZSPN Acquisition
Corporation, Z-Spanish Media and certain of its stockholders pursuant to which
we agreed to acquire all of the outstanding capital stock of Z-Spanish Media.
The transaction was consummated on August 9, 2000. The consideration paid to
the stockholders of Z-Spanish Media consisted of approximately $222 million in
cash, 7,187,888 shares of our Class A common stock and the assumption of certain
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liabilities. These shares were issued pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act.
(D) Use of Proceeds from Sales of Registered Securities.
On August 9, 2000, the Company completed an initial public offering (the
"Offering") of its Class A common stock. The underwriters for the Offering were
represented by Donaldson, Lufkin & Jenrette Securities Corporation, Credit
Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Salomon Smith Barney Inc., Bear, Stearns & Co. Inc. and DLJdirect
Inc. The shares of Class A common stock sold in the Offering were registered
under the Securities Act on a Registration Statement on Form S-1 (the
"Registration Statement") (Reg. No. 333-35336) that was declared effective by
the SEC on August 1, 2000. The Offering commenced on August 2, 2000.
46,435,458 shares of Class A common stock registered under the Registration
Statement were sold by the underwriters at a price of $16.50 per share. The
Company also sold 6,464,542 shares of its Class A common stock directly to
Univision at a price of $15.47 per share. The aggregate public offering price
was approximately $866,191,522. In connection with the Offering, the Company
paid an aggregate of $47.9 million in underwriting discounts and commissions to
the Underwriters. In addition, the following table sets forth an estimate of
all expenses incurred in connection with the Offering, other than underwriting
discounts and commissions. All amounts shown are estimated except for the fees
payable to the SEC, National Association of Securities Dealers, Inc. ("NASD")
and the New York Stock Exchange.
SEC registration fee $ 195,519
NASD filing fee 30,500
New York Stock Exchange listing fee 500,000
Blue sky fees and expenses 7,500
Printing and engraving expenses 700,000
Legal fees and expenses 1,475,000
Accounting fees and expenses 1,864,000
Transfer agent fees 3,500
Miscellaneous 250,000
----------
Total $5,026,019
==========
Use of Proceeds
The net proceeds to us from the sale of 52,900,000 shares of Class A common
stock in the Offering were approximately $813 million, after deducting the
underwriting fees and offering expenses.
We closed the acquisition of Z-Spanish Media on August 9, 2000.
Approximately $331 million of the net proceeds of the Offering were used to pay
the cash portion of the purchase price for Z-Spanish Media and to extinguish the
Z-Spanish Media indebtedness.
We closed the purchase of FCC licenses relating to the operation of radio
stations KACD (FM) Santa Monica, California, and KBCD (FM) Newport Beach,
California from Citicasters Co. on August 24, 2000. Approximately $68 million
of the net proceeds of the Offering were used to pay the purchase price.
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We closed the purchase of certain assets relating to the operations of
radio stations KFRQ (FM), KKPS (FM), KVPA (FM) and KVLY (FM) from Sunburst
Media, LP on September 12, 2000. Approximately $53 million of the net proceeds
of the Offering were used to pay the purchase price.
On September 26, 2000, we used $115.5 million of the proceeds from the
Offering to repay the balance of a term loan received from our bank group in
connection with our acquisition of LCG.
We closed the purchase of certain outdoor advertising assets located in
high-density communities in New York City from Infinity Broadcasting Corporation
on October 2, 2000. Approximately $168.2 million of the net proceeds of the
Offering were used to pay the purchase price.
We intend to use the balance of the net proceeds from the Offering as
follows:
<TABLE>
<S> <C>
To acquire television stations in Orlando, Florida and Hartford, Connecticut 38,500,000
For working capital, capital expenditures and general corporate purposes 38,800,000
-----------
Total $77,300,000
===========
</TABLE>
Until we use the net proceeds of the Offering as described above, we will
invest them in short-term, interest-bearing, investment grade securities.
None of the Company's net proceeds of the Offering were paid directly or
indirectly to any director, officer, general partner of the Company or their
associates, persons owning 10% or more of any class of equity securities of the
Company, or an affiliate of the Company.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
By Unanimous Written Consent of the Sole Stockholder of Entravision
Communications Corporation, effective July 31, 2000, the sole stockholder
elected the following individuals as directors of the Company, effective August
2, 2000, to serve until the next annual meeting of the stockholders or until
their successors are duly elected and have qualified, unless such individuals
are removed or are otherwise disqualified from serving as a director of the
Company:
Class A/B Directors Class C Directors
------------------- -----------------
Walter F. Ulloa Andrew W. Hobson
Philip C. Wilkinson Michael D. Wortsman
Paul A. Zevnik
Darryl B. Thompson
Amador S. Bustos
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Item 5. Other Information.
Z-Spanish Media
On April 20, 2000, the Company agreed to acquire all of the outstanding
capital stock of Z-Spanish Media. Z-Spanish Media owns 33 radio stations and an
outdoor billboard business. The acquisition closed on August 9, 2000. The
purchase price, as amended on July 25, 2000, consisted of approximately $222
million in cash 7,187,888 shares of newly-issued Class A common stock of the
Company and the assumption of certain liabilities. In connection with this
acquisition, the Company issued approximately 1.5 million options on its Class A
common stock in exchange for Z-Spanish Media's previously outstanding stock
options. In connection with these stock options, the Company will record as
additional purchase price approximately $12.4 million for the excess of the
estimated fair value over the intrinsic value of the options. In addition, the
Company will recognize approximately $0.8 million as non-cash stock-based
compensation over the remaining three-year vesting period.
Citicasters Co.
In March 2000, the Company entered into an asset purchase agreement with
Citicasters Co., a subsidiary of Clear Channel Communications, Inc., to acquire
the FCC licenses relating to the operations of radio stations KACD(FM) Santa
Monica, California, and KBCD(FM) Newport Beach, California, for $85.0 million.
On March 3, 2000, the Company deposited $17 million in escrow relating to this
acquisition. This transaction closed on August 24, 2000.
Radio Stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM)
On May 22, 2000, the Company agreed to acquire certain assets relating to
the operations of radio stations KFRQ(FM), KKPS(FM), KVPA(FM) and KVLY(FM) from
Sunburst Media, LP, for $55.0 million. This transaction closed on September 12,
2000.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are attached hereto and incorporated herein by
reference.
Exhibit Number Exhibit Description
2.1(1) Acquisition Agreement and Plan of Merger dated April 20, 2000 by
and among the registrant, Entravision Communications Company,
L.L.C., ZSPN Acquisition Corporation, Z-Spanish Media Corporation
and certain of its stockholders.
2.2(1) Exchange Agreement dated April 19, 2000 by and among the
registrant, Entravision Communications Company, L.L.C., certain
exchanging members and stockholders and Univision Communications
Inc.
2.3(2) Amended and Restated Exchange Agreement dated July 24, 2000 by
and among the registrant, Entravision Communications Company,
L.L.C., certain exchanging members and stockholders and Univision
Communications Inc.
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2.4(1) Asset Purchase Agreement dated as of June 14, 2000 by and between
the registrant and Infinity Broadcasting Corporation.
2.5(2) First Amendment to Acquisition Agreement and Plan of Merger dated
August 9, 2000 by and among the registrant, Entravision
Communications Company, L.L.C., ZSPN Acquisition Corporation, Z-
Spanish Media Corporation and certain of its stockholders.
2.6(1) Asset Purchase Agreement dated as of February 29, 2000 by and
between Citicasters Co. and the registrant.
2.7(2) Asset Purchase Agreement dated as of May 22, 2000 by and between
Sunburst Media, LP and the registrant.
3.1(2) First Restated Certificate of Incorporation of registrant.
3.2(2) First Amended and Restated Bylaws of registrant.
10.1(1) 2000 Omnibus Equity Incentive Plan of the registrant.
10.2(1) Form of Voting Agreement by and among Walter F. Ulloa, Philip C.
Wilkinson, Paul A. Zevnik and the registrant.
10.3(2) Employment Agreement dated August 1, 2000 by and between the
registrant and Walter F. Ulloa.
10.4(2) Employment Agreement dated August 1, 2000 by and between the
registrant and Philip C. Wilkinson.
10.5* Credit Agreement dated as of September 26, 2000 by and among the
registrant, as Borrower, the several banks and other lenders from
time to time parties of the Agreement, as Lenders, Union Bank of
California, N.A., as Arranging Agent for the Lenders, Union Bank
of California, N.A., as Co-Lead Arranger and Joint Book Manager,
Credit Suisse First Boston, as Co-Lead Arranger, Administrative
Agent and Joint Book Manager, The Bank of Nova Scotia, as
Syndication Agent, and Fleet National Bank, as Documentation
Agent.
27.1* Financial Data Schedule.
---------------------
* Filed herewith.
(1) Incorporated by reference from our Registration Statement on Form S-1, No.
333-35336, filed with the SEC on April 21, 2000, as amended by Amendment
No. 1 thereto, filed with the SEC on June 14, 2000, Amendment No. 2
thereto, filed with the SEC on July 10, 2000, Amendment No. 3 thereto,
filed with the SEC on July 11, 2000 and Amendment No. 4 thereto, filed with
the SEC on July 26, 2000.
(2) Incorporated by reference from our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, filed with the SEC on September 15, 2000.
(b) Reports on Form 8-K
None for quarter ended September 30, 2000.
We filed a report on Form 8-K (Item 2) on October 17, 2000 in which we
reported the purchase of certain outdoor advertising assets from
Infinity Broadcasting Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENTRAVISION COMMUNICATIONS CORPORATION
By: /s/ Jeanette Tully
--------------------------------------------
Jeanette Tully
Executive Vice President, Treasurer and Chief
Financial Officer
Dated: November 14, 2000
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